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Tuesday, July 18, 2006

Why CEOs Flock to New York

In the 1970s, New York leaked corporate headquarters like a busted hose. One after another, big corporations decamped for the suburbs (Pepsi, General Electric) or other parts of the country (American Airlines). But that was then. Now, New York is attracting corporate headquarters, and the reasons tell us a lot about how cities and companies have changed — and what companies need from cities these days.

It was easy to understand why companies fled New York in the 1970s. Crime was on the rise, so were taxes, and the population was headed to the suburbs, particularly the middle class. Companies left for logical reasons: If you want smart, talented people to work for you, you needed to be in nice places, like the suburbs. So why are companies coming back to New York? In a way, for the same reason: It’s where the smart, talented people are.

And this isn’t just a few companies. According to federal statistics, the number of corporate, subsidiary and regional headquarters in New York has more than doubled in the last 15 years, from 274 in 1990 to 602 today, the New York Times reported recently. There are important differences, though, between those who left in the 1970s and those returning now: For one thing, these relocations tend to involve only the most senior executives. The corporate staffs have remained in the suburbs or in other cities. For another, there’s not a lot of fanfare to these moves. Unlike when American Airlines left for Fort Worth in the 1970s, to the accompaniment of enormous public hand-wringing in New York, the recent moves have come almost unnoticed.

Example: Alcoa Corp., long a part of Pittsburgh’s corporate community, is now headquartered in New York. Or, at least, its CEO and 50 executives and assistants are there. About 2,000 other executives and staffers are still in Pittsburgh. Didn’t know that Alcoa had moved? Few did. The company hasn’t attached its name to a Manhattan skyscraper, didn’t announce the move back in 2001 and didn’t even acknowledge New York as its corporate address until earlier this year.

So why did Alcoa move? Not so much to attract employees (most are, after all, back in Pittsburgh) but so that its top executives could be close to New York’s deep business and professional services talent pool. Here’s how Alcoa’s CEO explained the move in a speech to a New York business group:

“We need access to the best and the brightest. We need it when we need it, not a week from today when they can lose a whole day to come and meet with us in Pittsburgh. We need them for breakfast meetings, for just a five-minute break, when the idea or the need comes. We need it every day.”

Well, great for New York. But what does this have to do with other cities? It points to the critical importance of human capital in urban economies. Get the right people to live in your city and the businesses will come in search of them — and not just as employees, but as advisors and high-level service providers.

Footnote: This obviously brings up the question of what attracts the “right people” to a city in the first place. It helps if, like New York, the city has successfully reduced crime and made its neighborhoods more attractive and livable. Great colleges and university are assets. So are cultural institutions, sports and entertainment. But just being a fun place helps. As a former New York economic development official told the Times, “People enjoy being here. It’s totally different than the 1970s.”